Financial Section. Annual Report Consolidated Statements of Financial Position

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1 Financial Section Annual Report 2017 Year ended March 31, 2017 Consolidated Statements of Financial Position Consolidated Statements of Profit or Loss and Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows

2 Consolidated Financial Statements Consolidated Statements of Financial Position Notes As of March 31, 2016 As of March 31, 2017 Assets Current assets Cash and cash equivalents 5,27,30 169, ,783 Trade receivables 6,27,30 134, ,566 Investments in securities and other financial assets 27,31 6,366 31,405 Inventories 7 93, ,851 Income taxes receivable 2, Other current assets 5,460 4,109 Subtotal 411, ,165 Assets held for sale Total current assets 411, ,165 Non-current assets Property, plant and equipment 9 70,752 70,806 Intangible assets 10 10,330 7,897 Investments accounted for using the equity method Trade receivables 6, Investments in securities and other financial assets 27,31 13,977 10,487 Deferred tax assets 12 21,761 22,805 Other non-current assets 15 1,152 1,213 Total non-current assets 119, ,585 Total assets 531, ,751 1

3 Liabilities Current liabilities Notes As of March 31, 2016 As of March 31, 2017 Trade payables 13,27,30,31 109, ,342 Other financial liabilities 15,27 16,494 17,202 Income taxes payable 1,149 13,899 Accrued expenses 21,591 24,437 Advances received 15,486 18,549 Provisions 14 1,812 1,640 Other current liabilities 1,190 1,631 Total current liabilities 167, ,700 Non-current liabilities Other financial liabilities 15,27 7,038 3,478 Retirement and severance benefits 15 33,067 26,106 Provisions 14 1,467 1,488 Deferred tax liabilities Other non-current liabilities Total non-current liabilities 42,282 31,846 Total liabilities 209, ,546 Equity Hitachi High-Technologies Corporation stockholders equity Common stock 16 7,938 7,938 Capital surplus 16 35,662 35,662 Retained earnings , ,136 Accumulated other comprehensive income 16 9,636 10,532 Treasury stock, at cost 16 (349) (356) Total Hitachi High-Technologies Corporation stockholders equity 320, ,913 Non-controlling interests Total equity 321, ,205 Total liabilities and equity 531, ,751 2

4 Consolidated Statements of Profit or Loss and Consolidated Statements of Comprehensive Income Consolidated Statements of Profit or Loss Years ended March 31, 2016 and 2017 Notes Revenues , ,545 Cost of sales 19,20 (487,993) (489,780) Gross profit 140, ,765 Selling, general and administrative expenses 18,19,20 (93,945) (97,493) Other income 22 4, Other expenses 19,21,22 (2,660) (4,845) Operating profit 49,356 53,107 Financial income Financial expenses 23 (1,510) (276) Share of profits (losses) of investments accounted for using the equity method EBIT (Earnings before interest and taxes) 48,209 53,636 Interest income Interest expenses 23 (52) (43) Income before income taxes 48,566 53,918 Income taxes 12 (12,575) (13,755) Net income 35,991 40,164 Net income attributable to: Hitachi High-Technologies Corporation stockholders 35,989 40,170 Non-controlling interests 1 (6) Total 35,991 40,164 Earnings per share attributable to Hitachi High-Technologies Corporation stockholders Basic and diluted earnings per share attributable to Hitachi High-Technologies Corporation stockholders 24 (Yen)

5 Consolidated Statements of Comprehensive Income Years ended March 31, 2016 and 2017 Notes Net income 35,991 40,164 Other comprehensive income (OCI) Items not to be reclassified into net income Net changes in financial assets measured at fair value through OCI 25 (752) 2,684 Remeasurements of defined benefit plans 25 (6,951) 4,805 Total items not to be reclassified into net income (7,704) 7,489 Items that can be reclassified into net income Foreign currency translation adjustments 25 (3,157) (666) Net changes in cash flow hedges 25 1,132 (562) Total items that can be reclassified into net income (2,025) (1,228) Other comprehensive income (OCI) (9,729) 6,260 Comprehensive income 26,262 46,424 Comprehensive income attributable to: Hitachi High-Technologies Corporation stockholders 26,295 46,444 Non-controlling interests (34) (20) Total 26,262 46,424 4

6 Consolidated Statements of Changes in Equity Notes Common stock Capital surplus Retained earnings Accumulated other comprehensive income Net changes in financial assets measured at FVTOCI Remeasurements of defined benefit plans Foreign currency translation adjustments As of April 1, ,938 35, ,553 7,133 4,570 7,501 Net income 35,989 Other comprehensive income (752) (6,951) (3,122) Comprehensive income ,989 (752) (6,951) (3,122) Acquisition of treasury stock 16 (0) Dividends 17 (6,877) Acquisition (disposal) of non-controlling interests Reclassified into retained earnings (763) (5) 768 Total transactions with the owners - (0) (7,639) (5) As of March 31, ,938 35, ,903 6,375 (1,613) 4,379 Net income 40,170 Other comprehensive income 2,684 4,805 (653) Comprehensive income ,170 2,684 4,805 (653) Acquisition of treasury stock 16 (0) Dividends 17 (10,315) Acquisition (disposal) of non-controlling interests Reclassified into retained earnings 5,378 (5,378) Total transactions with the owners - (0) (4,936) (5,378) - - As of March 31, ,938 35, ,136 3,681 3,191 3,726 5

7 Notes Accumulated other comprehensive income Net changes in cash flow hedges Total accumulated other comprehensive income Treasury stock, at cost Total Hitachi High-Technologies Corporation stockholders equity Non-controlling interests Total equity As of April 1, 2015 (636) 18,567 (343) 301, ,696 Net income - 35, ,991 Other comprehensive income 1,132 (9,694) (9,694) (35) (9,729) Comprehensive income 1,132 (9,694) - 26,295 (34) 26,262 Acquisition of treasury stock 16 - (6) (6) (6) Dividends 17 - (6,877) (21) (6,898) Acquisition (disposal) of non-controlling interests Reclassified into retained earnings Total transactions with the owners (6) (6,883) (21) (6,904) As of March 31, ,636 (349) 320, ,054 Net income - 40,170 (6) 40,164 Other comprehensive income (562) 6,274 6,274 (14) 6,260 Comprehensive income (562) 6,274-46,444 (20) 46,424 Acquisition of treasury stock 16 - (7) (7) (7) Dividends 17 - (10,315) (20) (10,335) Acquisition (disposal) of non-controlling interests Reclassified into retained earnings (5,378) - - Total transactions with the owners - (5,378) (7) (10,321) 48 (10,273) As of March 31, 2017 (66) 10,532 (356) 356, ,205 6

8 Consolidated Statements of Cash Flows Years ended March 31, 2016 and 2017 Cash flows from operating activities: Notes Net income 35,991 40,164 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 9,10 10,527 10,525 Impairment losses 21 1,889 4,119 Income taxes 12 12,575 13,755 Share of (profits) losses of investments accounted for using the equity method (51) (141) Interest income 23 (409) (326) Dividends income 23 (288) (329) Interest expenses Profits (losses) on sales of property, plant and equipment and intangible assets 22 (88) 327 Increase in trade receivables (943) (11,886) Increase in inventories (4,112) (7,318) Increase (decrease) in trade payables (7,682) 11,923 Increase (decrease) in advances received (2,893) 3,070 Decrease in retirement and severance benefits 15 (7,989) (5,206) Other (2,803) 4,722 Subtotal 33,775 63,442 Interest received Dividends received Interest paid (51) (43) Income taxes paid (16,201) (5,233) Income taxes refund 267 1,653 Net cash provided by operating activities 18,541 60,519 Cash flows from investing activities: Payments into deposits and time deposits (97) (37,500) Proceeds from withdrawal of deposits and time deposits 12,597 12,500 Purchase of property, plant and equipment 9 (9,138) (10,011) Purchase of intangible assets 10 (2,099) (2,002) Proceeds from sale of property, plant and equipment 9 2, Proceeds from sale of intangible assets Purchase of investments in securities and other financial assets 27 (935) (604) Proceeds from sale and redemption of investments in securities and other financial assets 27 2,531 8,088 Purchase of investments in subsidiaries resulting in change in scope of consolidation - (94) Proceeds from transfer of business Other 9 (132) Net cash provided by (used in) investing activities 6,107 (28,908) Cash flows from financing activities: Proceeds from payments from non-controlling interests - 68 Dividends paid to Hitachi High-Technologies Corporation stockholders 17 (6,874) (10,306) Dividends paid to non-controlling interests (40) (20) Acquisition of common stock for treasury 16 (6) (7) Other (199) (199) Net cash used in financing activities (7,120) (10,464) Effect of exchange rate changes on cash and cash equivalents (2,095) (739) Net increase in cash and cash equivalents 15,433 20,408 Cash and cash equivalents at beginning of year 5 153, ,375 Cash and cash equivalents at end of year 5 169, ,783 7

9 Notes to the Consolidated Financial Statements 1. Reporting Entity Hitachi High-Technologies Corporation (the Company) is a corporation domiciled in Japan, whose shares are publicly listed. The registered address of its Head Office is 24-14, Nishi-shimbashi 1-chome, Minato-ku, Tokyo. The Company s consolidated financial statements for the year ended March 31, 2017, comprise those of the Company and its subsidiaries (the Group) and its interests in associates. The Group s businesses center on electronics and its reportable segments consist of Science & Medical Systems, Electronic Device Systems, Industrial Systems and Advanced Industrial Products. 2. Basis of Presentation (1) Compliance with IFRS As the Company meets the requirements of a Specified Company applying Designated International Financial Reporting Standards pursuant to Article 1-2 of the Ordinance on Terminology, Forms and Preparation Methods of Consolidated Financial Statements, the consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB), as permitted by the provision of Article 93 of the Ordinance. On June 23, 2017, Masahiro Miyazaki, Representative Executive Officer, President, and Chief Executive Officer, and Shunichi Uno, Chief Financial Officer, Senior Vice President, and Executive Officer approved these consolidated financial statements. (2) Basis of Measurement The Group s consolidated financial statements have been prepared on a historical cost basis, except for the financial instruments and the liabilities and assets associated with defined benefit plans stated in Note 3 Summary of Significant Accounting Policies. (3) Presentation Currency The consolidated financial statements are presented in Japanese yen as the Company s functional currency. The financial information in Japanese yen is rounded to the nearest million. (4) Use of Estimates and Judgments Management has made a number of judgments, estimates and assumptions relating to the application of accounting policies, reporting of revenues and expenses and assets and liabilities in the preparation of these IFRS-based consolidated financial statements. However, actual results could differ from those estimates. Estimates and assumptions are continually evaluated. The effect of a revision in accounting estimates, is recognized in the reporting period in which the revision was made and in future periods. The information regarding judgments used in applying accounting policies that could have a material effect on the Company s consolidated financial statements is included in the following notes: Note 3 (1) Basis of Consolidation Note 3 (5) Financial Instruments and Note 27 Financial Instruments Note 3 (16) Revenue Recognition The information regarding uncertainties arising from assumptions and estimates that could result in material adjustments in the subsequent consolidated financial statements is included in the following notes: Note 3 (10) Impairment of Non-financial Assets and Note 21 Impairment Losses Note 3 (12) Employee Benefits and Note 15 Retirement and Severance Benefits Note 3 (13) Provisions and Note 14 Provisions Note 3 (14) Contingencies and Note 33 Contingencies Note 3 (17) Income Taxes and Note 12 Deferred Taxes and Income Taxes 8

10 3. Summary of Significant Accounting Policies (1) Basis of Consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. The Group has control over an entity if it has a power to investee, it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group consolidates subsidiaries from the date on which it acquires control until the date on which it loses control. Changes in ownership interests in subsidiaries without a loss of control are accounted for as equity transactions. Changes in ownership interests in subsidiaries with a loss of control are accounted for by derecognizing assets and liabilities, non-controlling interests, equity and accumulated other comprehensive income attributable to the subsidiaries. Subsidiaries financial statements are adjusted, if necessary, when their accounting policies differ from those of the Group. All intergroup balances, transactions, unrealized gains and losses are eliminated on consolidation. Comprehensive income for subsidiaries is attributed to Hitachi High-Technologies Corporation stockholders equity and noncontrolling interests even if this results in the non-controlling interests having a deficit balance. Hitachi High-Technologies (Shanghai) Co., Ltd. and nine other subsidiaries have fiscal years ending on December 31. A provisional account closing of accounts for these subsidiaries is performed in accordance with annual settlement of accounts as of the Company s fiscal year end. The closing dates of other subsidiaries are same as that of the Company. (ii) Associates Associates are entities over which the Group have significant influence but do not have control over the financial and operating policies of such entities. Significant influence is presumed to exist when the Group hold 20% to 50% of the voting power of another entity. Investments in associates are accounted for under the equity method from the date on which the Group obtains significant influence through the date on which it loses such influence. The financial statements of associates are adjusted, if necessary, when their accounting policies differ from those of the Group. Giesecke & Devrient K.K. and one other associate have fiscal years ending on December 31. A provisional account closing of accounts for these associates is performed in accordance with annual settlement of accounts as of the Company s fiscal year end. (2) Business Combinations Business combinations are accounted for using the acquisition method. For each specific business combination, the Group chooses how to measure investments in which it has non-controlling interests at fair value or by the appropriate share of identifiable net assets of the acquiree. The related acquisition costs are recognized in the period in which they are incurred. (3) Foreign Currency Translation (i) Foreign Currency Transactions Each Group company determines its own functional currency and measures its transactions in that functional currency. Foreign currency transactions are converted into the functional currency using the exchange rate prevailing at the transaction date or a rate that approximates such a rate. Monetary assets and liabilities denominated in foreign currencies are converted into the functional currency using the exchange rate at the end of the fiscal year. Foreign exchange gains and losses resulting from the currency conversion and settlement are recognized in profit or loss, except where gains and losses on assets or liabilities are recognized in other comprehensive income, foreign exchange effects relating to such assets or liabilities are also recognized in other comprehensive income. (ii) Foreign Operations Assets and liabilities of foreign operations are translated into Japanese yen using the exchange rate at the end of the reporting period, while revenue and expense items are translated using the average exchange rates during the period as long as there are no dramatic fluctuations in foreign exchange rates during the period. Translation differences arising from translations of the financial statements of foreign entities are recognized as other comprehensive income. Upon the full disposal of foreign operations or a partial disposal resulting in a loss of significant influence, any related cumulative gain or loss relating to those foreign operations is recognized as profit or loss. (4) Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, demand deposits, and short-term investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value and due within three months from the date of acquisition. 9

11 (5) Financial Instruments The Group adopts IFRS 9 Financial Instruments (IFRS 9) (issued in November 2009, amended in October 2010). (i) Non-Derivative Financial Assets The Group recognizes financial assets measured at amortized cost on the date they arise and recognizes other financial assets at the transaction when the Group becomes a party to the arrangement. The classification and measurement model of non-derivative financial assets is summarized as follows: Financial Assets Measured at Amortized Cost Financial assets are subsequently measured at amortized cost when they meet the following requirements: The financial asset is held under a business model the objective of which is to hold the asset to collect contractual cash flows. The contractual terms of the financial asset provide cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding. Financial assets measured at amortized cost are initially measured at fair value, including direct transaction costs. The carrying amount of financial assets measured at amortized cost is subsequently measured using the effective interest method. Impairment of Financial Assets Measured at Amortized Cost Impairment is deemed to have occurred when there is objective evidence of impairment resulting from one or more event after initial recognition and when it is reasonably foreseeable that the future cash flows of the financial assets will be affected. Objective evidence of impairment includes historical credit loss experience, existence of overdue payments, extended payment terms, negative evaluation by third party credit rating agencies, and deteriorated financial position and operating results, such as a capital deficit. Impairment losses are estimated based on estimated future cash flows discounted by the initial effective interest rate or the estimated fair value using the observable market price. In addition to the above impairment losses, the Group evaluates the potential risks of debtors or regions, etc., with regard to the relevant financial assets and recognizes impairment losses based on credit loss ratios calculated taking into consideration historical experience or other factors or estimates of collectible amounts. Impairment losses directly or through bad debt provisions reduce the carrying amount of the assets, and the losses are recognized in profit or loss. Thereafter, for trade receivables and other receivables, debt provisions are directly written off from the carrying amount where the relevant financial assets are deemed uncollectible. Financial Assets Measured at Fair Value through Profit or Loss (FVTPL Financial Assets) Financial assets not classified as financial assets measured at amortized cost and not designated as FVTOCI financial assets are classified as FVTPL financial assets. FVTPL financial assets are measured at fair value when initially recognized and incurred transaction expenses are recognized in profit or loss. After initial recognition, these assets are measured at fair value and the subsequent changes in fair value are recognized in profit or loss. Financial Assets Measured at Fair Value through Other Comprehensive Income (FVTOCI Financial Assets) For equity instruments that the Group holds to maintain close business relations with investees, the Group chooses for each financial asset whether or not it can be irrevocably designated as a FVTOCI financial asset upon initial recognition. FVTOCI financial assets are initially recognized at fair value, including transaction expenses. After initial recognition, they are measured at fair value, and subsequent changes in fair value are recognized as OCI. Amounts recognized as OCI that are derecognized as financial assets are transferred to retained earnings. Dividends are recognized in profit or loss. Derecognition of Financial Assets The Group derecognizes financial assets when contractual rights to cash flows from the financial assets expire or when the contractual rights to receive cash flows from the financial assets are transferred and the risks and economic rewards of owning the financial assets are almost all transferred. 10

12 (ii) Non-Derivative Financial Liabilities The Group classifies all non-derivative financial liabilities as financial liabilities measured at amortized cost and initially recognizes them on the date they arise. Financial liabilities measured at amortized cost are initially recognized at fair value, less transaction costs. They are subsequently measured at amortized cost based on the effective interest method. Financial liabilities are derecognized when contractual obligations are redeemed, discharged, canceled, or expired. (iii) Derivatives and Hedge Accounting The Group uses forward exchange contracts to hedge changes in cash flow relating to future foreign currency denominated transactions. These contracts are designated as cash flow hedges where satisfying hedge accounting requirements and are initially recognized at fair value. They are subsequently measured at fair value and portions for which hedging is deemed effective against subsequent changes are recognized as OCI. The Group documents risk management policies, including derivative usage objectives and strategies. In addition, a formal assessment is made at the hedge s inception and subsequently on a periodic basis, as to whether the derivative used in hedging activities is highly effective in offsetting changes in fair value or cash flows of the hedged items. Hedge accounting is discontinued if a hedge does not meet hedge accounting requirements or the hedging instruments have expired, been sold, or terminated or if the hedge designation has been canceled. If an expected transaction is no longer likely to occur, amounts recognized as OCI are promptly transferred to profit or loss. (iv) Offsetting Financial Assets and Liabilities Financial assets and liabilities are offset and reported as a net amount when the Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the asset and settle the liability simultaneously. (6) Inventories The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventories are measured at the lower of cost or net realizable value. Cost is mainly determined by the moving average method for finished goods and raw materials and by the specific identification method for work in process. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to sell. (7) Property, Plant and Equipment The Group uses the cost model to measure property, plant and equipment. They are stated at cost, less accumulated depreciation and accumulated impairment losses. Acquisition cost includes direct costs of acquisition, costs of dismantling, removing and restoration of the assets. Except for land and other assets that are not depreciated, property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives for major classes of assets: Buildings and structures 2 to 60 years Machinery, equipment and vehicles 2 to 17 years Tools, furniture and fixtures 2 to 20 years Estimated useful lives and the method of depreciation are reviewed at the fiscal year end. Changes in estimated useful lives or depreciation method are accounted for on a prospective basis as a change in accounting estimate. 11

13 (8) Intangible Assets (i) Goodwill Goodwill is stated at cost less any accumulated impairment losses, and is not amortized. (ii) Intangible Assets The Group applies the cost model to intangible assets and states such assets at cost less accumulated amortization and impairment losses. Intangible assets acquired separately are measured at cost at initial recognition, and the costs of intangible assets acquired through business combinations are recognized at fair value at the acquisition date. Intangible assets with finite useful lives are amortized generally using the straight-line method, while intangible assets with indefinite useful lives are not amortized. The estimated useful lives for major classes of assets are as follows: Software 2 to 5 years Other 5 to 20 years Estimated useful lives and the method of amortization are reviewed at the fiscal year end. Changes in estimated useful lives or amortization method are accounted for on a prospective basis as a change in accounting estimate. (9) Leases (i) Lease Transactions Whether an arrangement is or contains a lease is determined based on the nature of the arrangement. Leased assets are recognized when fulfillment of the contract is dependent on the use of certain assets or asset groups, with the arrangements providing rights to use the relevant assets. (ii) Finance Leases As Lessee Leases for which all of the risks and economic rewards of ownership are transferred to the Group are classified as finance leases. Lease assets and liabilities are initially recognized as the lower of the fair value or the present value of the minimum lease payments. After initial recognition, accounting is based on the accounting policies applied to the relevant assets and liabilities. As Lessor Leases for which all of the risks and economic value accompanying the asset ownership are transferred to the lessee are classified as finance leases. Lease receivables are recognized at amounts equivalent to the net investments in the leased assets and included in trade receivables in the consolidated statements of financial position. (iii) Operating Lease Transactions Leases other than finance leases are classified as operating leases. Operating lease payments are recognized in profit or loss on a straight-line basis throughout the lease terms. (10) Impairment of Non-financial Assets For each non-financial asset, the Group assesses whether there are any indications that assets may be impaired and tests for impairment when events or circumstances indicate such impairment. For goodwill and intangible assets with indefinite useful lives, the Group annually estimates recoverable amounts and tests for impairment regardless of whether or not there are indications of impairment. The Group uses the higher of the fair value less costs of disposal or value in use as the recoverable amount of an asset or a cash generating unit. In estimating the value in use, estimated future cash flows are discounted to the present value, using pre-tax discount rates that reflect the time value of money and the inherent risks of the relevant assets and cash generating units. If the carrying amount of an asset or a cash generating unit exceeds the recoverable amount, the impairment loss of the asset is recognized in profit or loss. For an asset other than goodwill, the recoverable amount is subsequently estimated when there is a significant change in facts and circumstances and there is an indication that an impairment loss previously recognized may no longer exist or has decreased. If the estimated recoverable amount exceeds the carrying amount, the impairment loss recognized previously is reversed to the extent of the carrying amount that would have been recorded, net of depreciation or amortization, if impairment had not been recognized previously. 12

14 (11) Assets Held for Sale An asset or disposal group for which the value is expected to be recovered through a sale rather than through continuing use is classified as an asset or disposal group held for sale when the asset or disposal group could be sold immediately as is or it is highly probable that the asset or disposal group will soon be sold. Assets held for sale are measured at the lower of the carrying amount or the fair value less costs to sell. There is no depreciation or amortization of assets after classification. (12) Employee Benefits (i) Retirement and Severance Benefits Defined Benefit Plans The Company and certain subsidiaries maintain defined benefit plans and / or severance lump-sum payment plans to provide retirement and severance benefits to employees. For each plan, the Group uses the projected unit credit method to calculate the present value of defined benefit obligations and related retirement benefit costs. For a discount rate, a discount period is determined based on the period until the expected date of benefit payment in each fiscal year and the discount rate is determined by reference to market yields for the period corresponding to the discount period at the end of the fiscal year on high-quality corporate bonds. Liabilities or assets for defined benefit plans are calculated by the present value of the defined benefit obligation, deducting the fair value of any plan assets. Remeasurements of defined benefit plan liabilities or assets are recognized as other comprehensive income in the period in which incurred but are not subsequently transferred to profit or loss. Past service costs are recognized as profit or loss in the period when incurred. Defined Contribution Plans The Company and certain subsidiaries maintain defined contribution plans. Under a defined contribution plan, the employer contributes certain amounts to another independent entity, and there is no legal or constructive obligation to pay more than the contributions. Contributions to defined contribution plans are recognized in profit or loss during the periods in which employees provided the relevant service. (ii) Short-Term Employee Benefits Short-term employee benefits are recognized in profit or loss during the periods in which employees provided the relevant service. When there is a legal and constructive obligation to pay bonuses and paid leave, and where it is possible to make reliable estimates, the payments based on such plans are recognized as estimated obligations. (13) Provisions The Company recognizes provisions when it has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. When the time to settle an obligation is expected to be long, and thus the time value of money is material, the amount of a provision is measured at the present value of the amount of expenditures expected to be required to settle the obligation. The present value is calculated by using pre-tax discount rates that reflect the time value of money and the inherent risks of the relevant obligations. See Note 14 Provisions for a discussion about the nature of the provisions and the amounts recognized by the Group. 13

15 (14) Contingencies (i) Contingent Liabilities The Group discloses contingent liabilities in Note 33 Contingencies if it has possible obligations at the fiscal year end, whose existence cannot be confirmed at that date, or if obligations do not meet the recognition criteria for provisions described above in Note 3(13) Provisions, excluding those where the possibility of an outflow of resources embodying economic benefits is remote. The Group has concluded financial guarantee agreements that require it to make repayments to compensate for a loss incurred if a specified debtor defaults on a payment on the due date based on the terms of a debt instrument. (ii) Contingent Assets The Group discloses contingent assets in Note 33 Contingencies if an inflow of resources embodying economic benefits is probable, but not virtually certain at the fiscal year end. (15) Capital (i) Common Stock and Capital Surplus The issue prices of equity instruments that the Company issues are recorded in common stock and capital surplus. The direct issuance costs are deducted from capital surplus. (ii) Treasury Stock Acquired treasury stock is recognized at cost and deducted from equity, while the difference between the carrying value of treasury stock and its value at the time of sale is recognized in capital surplus. (16) Revenue Recognition Revenue is measured at the fair value of consideration received or receivable by the Group, less discounts, rebates or consumption or other taxes. If there is more than one identifiable component in a single transaction, the components of the transaction are split and the revenue recognized for each component. If the economic reality of multiple transactions cannot be presented without being seen as integral, the revenue of multiple transactions is recognized integrally. The Group s revenue recognition criteria and presentation policies are as follows: (i) Revenue Recognition Standards Sale of Goods Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have been transferred to the customer, the Group has neither continuing involvement nor effective control over the goods sold, the costs incurred in respect of the transaction and the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Group. Specifically, revenue is recognized at such times as when goods are transferred to a customer, the date of shipment, or the date of acceptance by the customer. Rendering of Services Revenue from repairs and support services associated with the sale of products is recognized when services are provided. Revenue from maintenance or other fixed price service contracts is recognized evenly over the contractual period. Construction Contracts If the progress of construction can be reliably estimated, revenue is recognized using the percentage of completion method. Revenue under this method is calculated by the latest estimate of the total selling price multiplied by the ratio of the cost incurred to date to the estimated total cost of construction. Any anticipated losses on fixed-price contracts are expensed in profit or loss when such losses are estimated. If it is impossible to reliably estimate the outcome of a construction contract, revenue is recognized using the cost recovery method. Revenue under the cost recovery method is recognized only to the extent that there is a high probability of cost recovery, and costs are recognized in the period in which they are incurred. 14

16 (ii) Revenue Presentation Policy If the Group is a party to a transaction, all of the revenue received from the customer is presented. If the Group participates in a transaction as an agent for a third party, the commission paid by the customer, excluding the payment collected for the third party, is presented as revenue. The determination of whether the Group is a party or agent depends on such factors as whether or not it has the primary responsibility for supplying the products and services and executing the order, whether it incurs inventory risks before or after the customer places an order, during shipment, or upon returns, or whether the Group has the right to directly or indirectly set prices. (17) Income Taxes Income taxes comprise current and deferred taxes that are recognized in profit or loss, except for taxes recognized in equity or directly in OCI and taxes related to business combinations. Current income taxes are measured as amounts expected to be paid to or refunded from the taxation authorities. For the calculation of taxes, the Group uses the tax rates and tax laws that have been enacted or substantively enacted by the end of the fiscal year. Deferred income taxes are calculated based on the temporary differences between the tax basis for assets and liabilities and the carrying amount at the fiscal year end. Deferred tax assets are recognized for deductible temporary differences, carryforward of unused tax credits and unused tax losses to the extent that it is probable that future taxable profit will be available against which they can be utilized. Deferred tax liabilities are recognized for taxable temporary differences. The deferred tax assets or liabilities are not recognized for the following temporary differences: The initial recognition of goodwill The initial recognition of assets or liabilities in transactions that are not business combinations and at the time of transaction, affect neither accounting profit nor taxable profit or tax loss Taxable temporary differences arising from investments in subsidiaries and associates to the extent that the timing of the reversal of the temporary difference is controlled and that it is probable that the temporary difference will not reverse in the foreseeable future. Deductible temporary differences arising from investments in subsidiaries and associates to the extent that it is probable that the temporary difference will not reverse in the foreseeable future and that it is not probable that future taxable profits will be available against which they can be utilized Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the fiscal year when those temporary differences are reversed, based on tax rates that have been enacted or substantively enacted by the end of the fiscal year. Deferred tax assets and deferred tax liabilities are offset if there is a legally enforceable right to offset deferred tax assets and liabilities with current tax assets and liabilities, and where the same taxation authority imposes the same income tax on the same taxable entity or even on a different taxable entity, where these taxable entities intend to settle current tax assets and liabilities on a net basis or plan to realize these tax assets and liabilities simultaneously. (18) Consumption Tax Consumption tax collected and remitted to the taxation authorities is excluded from revenues, cost of sales and expenses. (19) Earnings per Share Basic earnings per share are calculated by dividing net income attributable to Hitachi High-Technologies Corporation stockholders by the weighted average number of ordinary shares outstanding during the period, excluding treasury stock. Basic and diluted earnings per share are the same, as there are no shares with dilutive potential. 15

17 (20) New Accounting Standards not yet Adopted by the Group The following table lists the principal new accounting standards and interpretations issued or amended prior to the approval date of the consolidated financial statements that have not been yet adopted as of the reporting date (March 31, 2017). The Group is currently evaluating the potential impact of adopting these standards and amendments on the Group, and is unable to estimate the impact at this time. IFRSs Title Mandatory effective date (Fiscal year beginning on or after) To be adopted by the Group IFRS 9 Financial Instruments January 1, 2018 April 1, 2018 IFRS 15 Revenue from Contracts with Customers January 1, 2018 April 1, 2018 Description of new standards and amendments Amendments for hedge accounting (amended in November 2013) Amendments for the classification and measurement of financial instruments, and adoption of expected credit loss impairment model for financial assets (amended in July 2014) Revised accounting standard for revenue recognition and disclosure IFRS 16 Leases January 1, 2019 April 1, 2019 Changes in definitions and accounting treatment of leases 16

18 4. Segment Information (1) Overview of Reportable Segments The Group s reportable segments are components for which separate financial information is available and which the Management Committee evaluates regularly in deciding how to allocate resources and in assessing performance. The Group maintains business divisions at the head office in accordance with the nature of its products and services. Each business division formulates comprehensive internal and external strategies and operates worldwide. Please note that for the year ended March 31, 2016, the Group had five segments, namely Electronic Device Systems, Fine Technology Systems, Science & Medical Systems, Industrial & IT Systems and Advanced Industrial Products, but starting from the year ended March 31, 2017, Industrial & IT Systems and Fine Technology Systems are integrated into Industrial Systems to strengthen and deepen the cultivation of a business platform in Social and Industrial Infrastructure. With this change, business segments are now classified into the following four segments: Science & Medical Systems, Electronic Device Systems, Industrial Systems and Advanced Industrial Products. Segment information for the year ended March 31, 2016, reflects this change in segment classification. The main products and services of each segment are as follows: Science & Medical Systems Manufacture, sales, installation and maintenance services of various analytical instruments including spectrophotometers, chromatographs, fluorescent X-ray analysis and thermal analysis systems, and electron microscopes, biotechnology products and clinical analyzers. Electronic Device Systems Manufacture, sales, installation and maintenance services of semiconductor related manufacturing equipment such as etching systems, CD-Measurement SEMs, and inspection systems. Industrial Systems Sales of automated assembly systems for LIBs and other products, HDDs, power generation and transformation facilities, design and development solutions, videoconferencing systems, and telecommunications equipment. Manufacture, sales, installation and maintenance services of instruments and control systems, and related systems, railway inspection equipment, HD manufacturing equipment, factory automation equipment, and FPD manufacturing equipment. Advanced Industrial Products Sales of automated assembly systems in steel products, and non-ferrous metal products, components for circuits, plastics, cell materials and components, automotive components, silicon wafers, optical telecommunications device materials and components, optical storage device materials and components, electronic components such as semiconductors, and oil products. (2) Reportable Segment Information The accounting methods applied to the business segments reported are generally the same as those described in Note 3 Summary of Significant Accounting Policies. Intersegment transactions are generally based on prevailing market prices. Segment income is measured by earnings before interest and taxes (EBIT). Corporate property, plant and equipment and intangible assets cannot be allocated to particular reportable segments and are not included in the assets of those segments. The related depreciation and amortization are included in segment income because they constitute part of the corporate expenses allocated to each reportable segment. Information relating to reportable segments is as follows: 17

19 Year ended March 31, 2016 Science & Medical Systems Electronic Device Systems Reportable segments Industrial Systems Advanced Industrial Products Total Others (Note 1) Adjustment Consolidated Revenues External customers 176, ,424 95, , ,192 1,113 (321) 628,984 Intersegment revenues ,365 2,594 6, (7,799) - Total 176, ,711 98, , ,078 2,027 (8,121) 628,984 Segment income (loss) EBIT 26,571 15,307 1,130 3,457 46,465 (1,525) 3,270 48,209 Interest income (Note 2) Interest charges (Note 2) - (287) (136) (335) (757) (6) 711 (52) Income before income taxes 26,864 15, ,122 46,000 (1,531) 4,097 48,566 Other income and expenses Depreciation and amortization (4,314) (4,297) (1,196) (631) (10,437) (90) - (10,527) Impairment losses (Note 3) (1,540) - (233) - (1,773) (102) (15) (1,889) Share of profits of investments accounted for using the equity method (Note 4) - - (15) (35) 51 Segment assets 83,992 71,702 45,721 96, , , ,032 Other assets Investments accounted for using the equity method (Note 5) Capital expenditures (Note 3) 3,975 3,537 1,272 1,108 9, ,315 11,237 Segment liabilities 29,081 24,387 23,976 60, , , ,979 Notes 1. Others represent businesses segments not included in the reportable segments, and they include indirect-support businesses. 2. Interest income and charges incurred at each business segment are interests of intracompany loans payable. These interest income and charges are offset, and the net amount represented as either interest income or charges in accordance with the net amount since it is recognized on a net basis for internal management purposes. The adjustments for interest income and interest charges are mainly for the head office, which are not attributable to any business segments, and reversal of interests on intracompany loans payable. 3. Impairment losses and capital expenditure in Adjustments are corporate amounts not attributable to any business segments. 4. For management purposes, share of profits of investments accounted for using the equity method is equivalent to the income before income taxes of equity method associates, and the difference between these amounts and the amounts shown on the consolidated financial statements is included in Adjustment. 5. For management purposes, investments accounted for using the equity method in each business segment are initial investments in equity method associates, and the difference between these amounts and the amounts shown on the consolidated financial statements is included in Adjustment. 18

20 Year ended March 31, 2017 Science & Medical Systems Electronic Device Systems Reportable segments Industrial Systems Advanced Industrial Products Total Others (Note 1) Adjustment Consolidated Revenues External customers 185, ,214 88, , , (1,746) 644,545 Intersegment revenues ,067 3,056 7, (8,010) - Total 186, ,483 91, , ,419 1,882 (9,757) 644,545 Segment income (loss) EBIT 27,103 27,044 2,129 2,272 58,548 (1,101) (3,811) 53,636 Interest income (Note 2) (47) 326 Interest charges (Note 2) - (5) (109) (206) (319) (7) 283 (43) Income before income taxes 27,476 27,039 2,020 2,066 58,602 (1,108) (3,575) 53,918 Other income and expenses Depreciation and amortization (4,465) (4,125) (1,134) (762) (10,487) (39) - (10,525) Impairment losses (Note 3) (1,807) (22) - (49) (1,878) - (2,241) (4,119) Share of profits of investments accounted for using the equity method (Note 4) (67) 141 Segment assets 88,172 75,344 47, , , , ,751 Other assets Investments accounted for using the equity method (Note 5) Capital expenditures (Note 3) 5,635 4, ,339 12,537 5 (528) 12,013 Segment liabilities 31,068 31,048 23,456 66, , , ,546 Notes 1. Others represent businesses segments not included in the reportable segments, and they include indirect-support businesses. 2. Interest income and charges incurred at each business segment are interests of intracompany loans payable. These interest income and charges are offset, and the net amount represented as either interest income or charges in accordance with the net amount since it is recognized on a net basis for internal management purposes. The adjustments for interest income and interest charges are mainly for the head office, which are not attributable to any business segments, and reversal of interests on intracompany loans payable. 3. Impairment losses and capital expenditure in Adjustments are corporate amounts not attributable to any business segments. 4. For management purposes, share of profits of investments accounted for using the equity method is equivalent to the income before income taxes of equity method associates, and the difference between these amounts and the amounts shown on the consolidated financial statements is included in Adjustment. 5. For management purposes, investments accounted for using the equity method in each business segment are initial investments in equity method associates, and the difference between these amounts and the amounts shown on the consolidated financial statements is included in Adjustment. 19

21 (3) Information about Differences between Totals of Reporting Segments and Consolidated Financial Statements and Main Details of Differences (Matters Relating to Adjustments) Revenues For the year ended March 31, 2016 For the year ended March 31, 2017 Reportable segment total 635, ,419 Others (other business segment) 2,027 1,882 Intersegment transaction elimination (7,799) (8,010) Other adjustments (see Note) (321) (1,746) Consolidated financial statements 628, ,545 Note: Other adjustments are management accounting adjustments. Segment income (EBIT) For the year ended March 31, 2016 For the year ended March 31, 2017 Reportable segment total 46,465 58,548 Others (other business segment) (1,525) (1,101) Intersegment transaction elimination 26 (153) Other adjustments (see Note) 3,244 (3,658) Consolidated financial statements 48,209 53,636 Note: Other adjustments are mainly corporate profit or loss not attributable to any business segments. Assets As of March 31, 2016 As of March 31, 2017 Reportable segment total 298, ,022 Others (other business segment) Intersegment transaction elimination (880) (1,114) Other adjustments (see Note) 233, ,933 Consolidated financial statements 531, ,751 Note: Other adjustments are mainly corporate assets not attributable to any business segments. Liabilities As of March 31, 2016 As of March 31, 2017 Reportable segment total 137, ,012 Others (other business segment) Intersegment transaction elimination (842) (924) Other adjustments (see Note) 72,747 79,290 Consolidated financial statements 209, ,546 Note: Other adjustments are mainly corporate liabilities that do not belong to any business segments. (4) Product and Services Information This is as disclosed in Note 4 (2) Reportable Segment Information and is not presented here. 20

22 (5) Geographical Information (i) External Revenues For the year ended March 31, 2016 For the year ended March 31, 2017 Japan 255, ,795 North America 59,205 54,615 Europe 88,342 87,823 Asia 218, ,433 (China) 88,228 84,125 Others 6,831 24,880 Total 628, ,545 Note: Revenue information is based on customer location and classified by country or region. (ii) Non-Current Assets Non-current asset information is not presented as such assets are mostly located in Japan. (6) Information about Major Customers For the year ended March 31, 2016, two customer groups accounted for more than 10% of the Group s net sales, with sales for all segments to those customers amounting to 184,653 million. For the year ended March 31, 2017, two customer groups accounted for more than 10% of the Group s net sales, with sales for all segments to those customers amounting to 200,060 million. 21

23 5. Cash and Cash Equivalents Cash and cash equivalents are as follows: As of March 31, 2016 As of March 31, 2017 Bank deposits with cash and deposits with maturities of less than three months 23,843 27,464 Deposits with maturities of less than three months 145, ,319 Cash and cash equivalents 169, , Trade Receivables The components of trade receivables are as follows: As of March 31, 2016 As of March 31, 2017 Accounts receivable 121, ,791 Notes receivable 12,554 16,330 Finance lease receivables 1,380 1,578 Less: Allowance for doubtful receivables (213) (139) Total 135, ,560 Current assets 134, ,566 Non-current assets Credit risk management and the fair value of trade receivables are stated in Note 27 Financial Instruments. 7. Inventories The components of inventories are as follows: As of March 31, 2016 As of March 31, 2017 Merchandise and finished goods 47,278 50,497 Work in progress 41,639 45,211 Raw materials 4,388 5,143 Total 93, ,851 Inventories included in the cost of sales and recognized as an expense totaled 486,683 million and 487,909 million in the years ended March 31, 2016 and 2017, respectively. The write-downs of inventories recognized as an expense are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Inventory write-downs 1,310 1, Assets Held-for-Sale The components of assets held-for-sale is as follows: Assets held-for-sale As of March 31, 2016 As of March 31, 2017 Software Tools, furniture and fixtures 62 - Total As the Group decided to divest 318 million of software and other assets belonging to Industrial Systems segment, such assets were classified as assets held-for-sale as of March 31, Such assets were sold in the year ended March 31,

24 9. Property, Plant and Equipment Changes in acquisition cost, accumulated depreciation, accumulated impairment losses and carrying amount of property, plant and equipment are as follows: (1) Acquisition cost Buildings and structures Machinery and vehicles Tools, furniture and fixtures Land Construction in progress As of April 1, ,511 41,552 33,189 18,667 1, ,498 Acquisitions ,496 8,980 Sales or disposals (595) (2,037) (1,872) (1) (3) (4,507) Transfers from construction in progress 1,655 2,416 2,565 - (6,636) - Currency translation effect (381) (577) (222) (4) (11) (1,195) Other (5) (35) (266) - (769) (1,075) As of March 31, ,428 41,982 33,974 18,663 1, ,702 Acquisitions ,715 11,794 Increase due to business combination Sales or disposals (422) (2,133) (2,761) - (0) (5,317) Transfers from construction in progress 2,650 3,105 3, (9,606) - Currency translation effect (184) (14) (50) (11) (9) (268) Other (172) (315) (1,244) (3) (678) (2,411) As of March 31, ,589 42,954 33,905 18,997 2, ,524 Total (2) Accumulated depreciation and accumulated impairment losses Buildings and structures Machinery and vehicles Tools, furniture and fixtures Land Construction in progress As of April 1, ,828 30,150 24, ,833 Sales or disposals (504) (1,784) (1,821) - - (4,109) Depreciation 2,168 3,238 2, ,958 Impairment losses Currency translation effect (121) (309) (175) - - (605) Other (2) (105) (125) - - (232) As of March 31, ,385 31,210 25, ,950 Increase due to business combination Sales or disposals (363) (1,950) (2,283) - - (4,595) Depreciation 2,110 3,177 2, ,171 Impairment losses , ,666 Currency translation effect (42) 35 (34) - - (41) Other (138) (168) (1,137) - - (1,442) As of March 31, ,469 32,351 24,787 1, ,717 Total (3) Carrying amount Buildings and structures Machinery and equipment Tools, furniture and fixtures Land Construction in progress As of March 31, ,043 10,771 8,620 18,663 1,656 70,752 As of March 31, ,121 10,603 9,119 17,908 2,056 70,806 Total There are no ownership restrictions on property, plant and equipment. Amounts for property, plant and equipment under construction are presented in construction in progress. Details on impairment losses are stated in Note 21 Impairment Losses. Commitments relating to acquisitions of property, plant and equipment are presented in Note 32 Commitments. Depreciation is recognized in cost of sales and in selling, general and administrative expenses. 23

25 The carrying amounts of lease assets included in property, plant and equipment are as follows: Machinery and vehicles Tools, furniture and fixtures As of March 31, As of March 31, Intangible Assets Changes in acquisition cost, accumulated amortization, accumulated impairment losses and carrying amount of intangible assets are as follows: (1) Acquisition cost Goodwill Software Other Total As of April 1, ,286 22,576 6,780 33,641 Purchases - 1, ,034 Internal development - 1,065-1,065 Sales or disposals (60) (1,693) (51) (1,804) Currency translation effect - (39) (49) (88) Other - (744) (14) (758) As of March 31, ,226 22,183 6,682 33,091 Purchases Internal development - 1,122-1,122 Increase due to business combination Sales or disposals - (946) (33) (979) Currency translation effect - (25) (3) (28) Other - (2) - (2) As of March 31, ,491 23,205 6,668 34,364 (2) Accumulated amortization and accumulated impairment losses Goodwill Software Other Total As of April 1, ,511 3,858 20,369 Sales or disposals - (1,389) (4) (1,393) Amortization - 2, ,503 Impairment losses 1, ,785 Currency translation effect - (28) (33) (62) Other - (427) (14) (441) As of March 31, ,540 16,952 4,269 22,761 Sales or disposals - (913) (30) (943) Amortization - 1, ,355 Impairment losses 2, ,318 Currency translation effect - (22) (1) (23) Other - (0) - (0) As of March 31, ,850 18,008 4,609 26,467 (3) Carrying amount Goodwill Software Other Total As of March 31, ,686 5,231 2,413 10,330 As of March 31, ,197 2,059 7,897 24

26 There are no ownership restrictions on intangible assets. Details on impairment losses are stated in Note 21 Impairment Losses. Amortization is recognized in the cost of sales and in selling, general and administrative expenses. There are no significant intangible assets whose useful lives cannot be estimated. The carrying amounts of internally generated intangible assets as of March 31, 2016 and 2017 were 1,808million and 2,135million, respectively, and recognized in the software account. (4) Significant Intangible Assets Significant intangible assets resulted from the acquisition of SII NanoTechnology Inc. (now named as Hitachi High-Tech Science Corporation). The carrying amounts of goodwill as of March 31, 2016 and 2017 were 2,686 million and 376 million, respectively. The intangible assets related to such factors as technologies and customers identified through the business combination, and the carrying amounts as of March 31, 2016 and 2017 were 2,121 million and 1,815 million, respectively. Intangible assets are amortized using the straight-line method, and the remaining useful life is mainly five years. (5) Tests for Impairment of Cash Generating Units including Goodwill All significant goodwill in the Group is allocated to the Analytical Systems business of the Science & Medical Systems segment. The carrying amount as of March 31, 2016 and 2017 were 2,686 million and 376 million, respectively. Every year or when there are indications of impairment, the Company conducts the following impairment tests of cash generating units to which goodwill is allocated. The recoverable amount for the Analytical Systems business, a cash generating unit, is calculated by the value in use, with the estimated future cash flows discounted to the present value, based on a three-year business plan that was prepared by reflecting past experiences and external information approved by management. Management assumes a future cash flow growth rate of zero beyond the three year business plan. The discount rate before taxes is based on the weighted average cost of capital of other companies in the same industry, and this rate as of March 31, 2016 and 2017 was 6.0%. If there is a reasonable change in major assumptions for tests for impairment, such as the decrease of future cash flows or the hike of discount rate, it is likely that additional impairment losses will be recognized. For the years ended March 31, 2016 and 2017, the Company recognized impairment losses, which are described in Note 21 Impairment Losses. 11. Investments Accounted for Using the Equity Method The Group uses the equity method to account for its investments in the following associates. Company name Principal business Segment Giesecke & Devrient K.K. Chorus Call Asia Corporation Selling and developing IC cards and other Giesecke & Devrient products in the Japanese market Providing video and audio conferencing services Advanced Industrial Products Note: Summary financial information is not presented because it is insignificant. Ownership percentage (%) As of March 31, 2016 As of March 31, Industrial Systems

27 12. Deferred Taxes and Income Taxes (1) Details of the main components and changes in deferred tax assets and deferred tax liabilities are as follows: Deferred tax assets As of March 31, 2015 Recognized in profit or loss Recognized in other comprehensive income Change in scope of consolidation (see Note 1) As of March 31, 2016 Inventories 3,704 (458) - (37) 3,209 Depreciation and amortization 1, ,053 Impairment losses 910 (910) Accrued expenses 4,981 (440) - (20) 4,521 Retirement and severance benefits (see Note 2) 15,206 (2,667) 2,474 (436) 14,577 Carryforward of unused tax losses 24 (15) - (2) 8 Other 3,055 (378) (528) (95) 2,054 Total deferred tax assets 29,835 (4,789) 1,946 (569) 26,421 Deferred tax liabilities Deferred profit on sale of properties (724) (586) FVTOCI financial assets (3,408) (2,805) Other (1,383) 27 - (1) (1,357) Total deferred tax liabilities (5,515) (4,747) Notes: 1. Changes in foreign currency translation differences are included in the change in the scope of consolidation. 2. In the transition to defined contribution pension plans, the asset to be transitioned is recognized in retirement and severance benefits. Deferred tax assets As of March 31, 2016 Recognized in profit or loss Recognized in other comprehensive income Change in scope of consolidation (see Note 1) As of March 31, 2017 Inventories 3, ,660 Depreciation and amortization 2, ,931 Accrued expenses 4, (1) 5,380 Retirement and severance benefits (see Note 2) 14,577 (1,404) (2,052) 2 11,124 Carryforward of unused tax losses (0) 25 Other 2, (2) 2,828 Total deferred tax assets 26,421 1,548 (2,023) 1 25,948 Deferred tax liabilities Deferred profit on sale of properties (586) (545) FVTOCI financial assets (2,805) - 1,183 1 (1,621) Other (1,357) (4) (999) Total deferred tax liabilities (4,747) 181 1,406 (3) (3,164) Notes: 1. Changes in foreign currency translation differences are included in the change in the scope of consolidation. 2. In the transition to defined contribution pension plans, the asset to be transitioned is recognized in retirement and severance benefits. 26

28 In recognizing deferred tax assets, the Group considers whether it can use all or part of future deductible temporary differences or carryforward unused tax losses with respect to future taxable income. In evaluating the recoverability of deferred tax assets, the Group considers the planned reversal of deferred tax liabilities, expected future taxable income, and tax planning. For recognized deferred tax assets, the Group has determined that there is a high probability of materializing tax benefits based on historical taxable income levels and on future taxable income projections for the period in which it can recognize deferred tax assets. However, they would similarly be a decrease in deferred tax assets that the Group considers recognizable if future projected taxable income declines during the period in which deductions are possible. Deferred tax assets and deferred tax liabilities in the consolidated statements of financial position are as follows: As of March 31, 2016 As of March 31, 2017 Deferred tax assets 21,761 22,805 Deferred tax liabilities (87) (21) (2) Future Deductible Temporary Differences and Carryforward of Unused Tax Losses for Unrecognized Deferred Tax Assets Future deductible temporary differences and carryforward of unused tax losses for unrecognized deferred tax assets are as follows: As of March 31, 2016 As of March 31, 2017 Future deductible temporary differences 9,831 11,267 Carryforward of unused tax losses 4,885 4,551 Total 14,716 15,818 The carryforward of unused tax losses for unrecognized deferred tax assets will expire as follows: As of March 31, 2016 As of March 31, 2017 First year - - Second year - - Third year - - Fourth year - 45 Fifth and subsequent years 4,885 4,506 Total 4,885 4,551 (3) Temporary Differences Relating to Investments in Subsidiaries for Unrecognized Deferred Tax Liabilities On March 31, 2016 and 2017, future taxable temporary differences relating to investments in subsidiaries with unrecognized deferred tax liabilities totaled 37,469 million and 41,285 million, respectively. Deferred tax liabilities are unrecognized because the Group can control the timing of temporary difference reversals and because there is a high possibility that temporary differences will not be eliminated in the foreseeable future. (4) Income Taxes Details of income taxes are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Current tax expense 7,951 15,483 Deferred tax expense Temporary differences and eliminations 3,043 (2,355) Recoverability of deferred tax assets Change in tax rates Total deferred tax expenses 4,624 (1,728) Income taxes 12,575 13,755 27

29 (5) Reconciliation of Effective Statutory Tax Rate The reconciliation of the effective statutory tax rate with the actual tax rate is as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Effective statutory tax rate 33.1 % 30.9 % Non-deductible costs 0.7 % 0.9 % Tax credit (4.6) % (7.9) % Different tax rates applied to foreign subsidiaries (1.1) % (0.7) % Downward revision in deferred tax assets due to tax rate change 1.7 % - Change in recoverable deferred tax assets 1.5 % 1.2 % Acquisition of subsidiary (6.1) % - Other 0.6 % 1.2 % Actual tax rate 25.9 % 25.5 % The Company is subject mainly to corporate, inhabitant, and enterprise taxes. The effective statutory tax rates calculated based on these taxes were 33.1% and 30.9% for the years ended March 31, 2016 and 2017, respectively. Foreign subsidiaries are subject to income taxes at their locations, while the Company and domestic subsidiaries have adopted the consolidated taxation system. The Act for Partial Amendment of the Income Tax Act, etc. (Act No.15 of 2016) and the Act for Partial Amendment of the Local Tax Act, etc. (Act No.13 of 2016) were enacted on March 29, In line with this change, the effective statutory tax rate used to calculate deferred tax assets and deferred tax liabilities decreased from 32.3% to 30.9% for the temporary differences expected to be realized or settled, in the fiscal year starting on April 1, 2016 and the fiscal year starting on April 1, 2017 with the effective statutory tax rate changing to 30.6%, for the temporary differences expected to be realized or settled from the fiscal year starting on April 1, Trade Payables Details of trade payables are as follows: As of March 31, 2016 As of March 31, 2017 Accounts payable 109, ,387 Notes payable 543 9,955 Total 109, ,342 Liquidity risk management and the fair value of trade payables are stated in Note 27 Financial Instruments. 28

30 14. Provisions Changes in the balance and components of provisions are as follows: Asset retirement obligations Product warranty provisions Total As of March 31, ,531 3,279 Additions 130 1,064 1,193 Provisions used (13) (1,288) (1,301) Provisions reversed - (50) (50) Interest cost for discount Currency translation effects 0 (6) (6) As of March 31, ,250 3,128 Current liabilities 25 1,615 1,640 Non-current liabilities ,488 (i) Asset Retirement Obligations To settle the obligation of restoring and removing hazardous substances from plant facilities and premises that the Group uses, the Group recognizes the estimated amount based on the estimated future expenditures calculated based on estimates from third parties. These expenses are expected to be paid after one year or more, however, they may be affected by future business plans. (ii) Product Warranty Provisions To provide for the costs of after-sales service for the Group s products, the Group recognizes estimated service costs within the warranty period based on historical experience. These expenses are used over the warranty period (principally within three years). 15. Retirement and Severance Benefits The Company and certain domestic subsidiaries have maintained defined benefit pension plans and severance lump-sum payment plans as defined benefit corporate pension plans and transitioned in part to a defined contribution pension plan on October 1, Some foreign subsidiaries have defined benefit pension plans, while some have defined contribution plans. Certain defined benefit corporate pension plans adopt cash-balance plans. In the transition to defined contribution pension plans, the Company recognized gain from the transition to defined contribution pension plans during the year ended March 31, The asset is scheduled to be transitioned for four years and the asset to be transitioned is recognized in other current liabilities and in other non-current liabilities in the consolidated statements of financial position. In the consolidated statement of cash flows, the net amount of the decrease in retirement benefit and the increase or decrease in other financial liabilities related to the asset to be transitioned is recognized in decrease in retirement and severance benefits. The benefits of defined benefit plans are predetermined based on conditions, such as points employees have gained in compensation for each year of service, the payment rate in retirement, years of service and average salaries in their final years of service before retirement. Some employees receive additional severance payments at the time of retirement. Funded defined benefit plans are administrated by the fund that is a separate legal entity from the Company under the law. The pension fund board and trustee of the plan are required by law to act in the best interests of the plan participants, and are responsible for managing plan assets in accordance with the designated investment strategy. Pursuant to the Japanese Defined Benefit Corporate Pension Plan Act, the Company endeavors to maintain the pension financing balance for future benefits by regularly reviewing the financial condition of the pension plan and recalculating contributions. The Company has future obligations to make contributions as defined by the fund. The contribution amount is periodically reviewed to the extent legally allowed. Severance lump-sum payment plans provide a lump-sum payment at the time of retirement, and the Company has an obligation to pay benefits directly to beneficiaries. These defined benefit plans expose the Group to actuarial risks. The Group plans to allocate 1,883 million in contributions for the fiscal year ending March 31, Defined contribution plans require a fixed amount of contribution over a participation period and plan participants themselves are responsible for the management of plan assets. Benefits are paid by the trustees, and the Company s responsibility is limited to making contributions. 29

31 (1) Defined Benefit Plans (i) Net Liabilities (Assets) of Defined Benefit Plans Amounts recognized in the consolidated statements of financial position are as follows and the amounts recognized as defined benefit pension plans are presented in other non-current liabilities in the consolidated statements of financial position: Present value of defined benefit plan obligations Fair value of plan assets Net defined benefit plan obligations (assets) As of April 1, ,550 (89,578) 43,972 Amounts recognized in profit or loss Service cost 4,499-4,499 Interest cost (income) 1,326 (983) 343 Gain on transition to defined contribution pension plans (3,799) - (3,799) Total 2,026 (983) 1,043 Amounts recognized in OCI Remeasurement Actuarial gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions 6,106-6,106 Actuarial gains and losses arising from actual adjustments 1,274-1,274 Return on plan assets (excluding interest income) - 1,517 1,517 Total 7,909 1,517 9,425 Other Contributions by the employer - (3,293) (3,293) Benefits paid (5,876) 3,590 (2,286) Reduction due to transition to defined contribution pension plans (15,608) - (15,608) Currency translation effects (719) 448 (271) Total (22,203) 746 (21,457) As of March 31, ,282 (88,299) 32,983 Amounts recognized in profit or loss Service cost 4,070-4,070 Interest cost (income) 751 (591) 160 Total 4,821 (591) 4,230 Amounts recognized in OCI Remeasurement Actuarial gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions (1,459) - (1,459) Actuarial gains and losses arising from actual adjustments (1,394) - (1,394) Return on plan assets (excluding interest income) - (4,184) (4,184) Total (2,672) (4,184) (6,856) Other Contributions by the employer - (3,093) (3,093) Benefits paid (4,736) 3,448 (1,288) Currency translation effects 36 (59) (23) Other (30) - (30) Total (4,729) 295 (4,434) As of March 31, ,701 (92,778) 25,923 30

32 The Company s funding takes into account such factors as limits on tax deductions, the fund status of plan assets, and actuarial assumptions. Contributions to plan assets are intended to cover future benefits as well as those for service that has already been provided. In addition, the Company may contribute cash to a retirement allowance trust as a reserve for shortfalls in funding for benefit obligations at the end of the fiscal year. Management of the Company s plan assets aims to secure the payment of benefits to beneficiaries (including future pension beneficiaries) and optimize the value of plan assets within acceptable range of risks. The Company s management of plan assets factors in risks and returns for investment assets and includes formulating a policy asset mix that is optimal for the future, selecting trustees, and monitoring asset allocation. The Company periodically reviews the policy asset mix to accommodate changes in the market environment from initial assumptions and changes in the funded status. The Company targets an asset allocation mix of 19% for equities, 38% for bonds, and 43% for other instruments. (ii) Main Plan Asset Components Details of the major components of plan assets are as follows: With quoted market price in an active market As of March 31, 2016 With no quoted market price in an active market Cash and cash equivalents Equities 3,005-3,005 Bonds 1,100 1,729 2,829 Hedge funds - 25,746 25,746 Private assets - 4,590 4,590 Securitization products - 1,696 1,696 Life insurance general accounts - 1,594 1,594 Comingled funds (see Note) - 46,834 46,834 Other 116 1,181 1,297 Total 4,930 83,369 88,299 Note: Commingled funds comprised 35% in listed equities, 25% in national government bonds, 22% in other bonds, and 18% in other assets. Total With quoted market price in an active market As of March 31, 2017 With no quoted market price in an active market Cash and cash equivalents 2,040-2,040 Equities 3,428-3,428 Bonds 1,219 1,966 3,186 Hedge funds - 29,994 29,994 Private assets - 10,276 10,276 Securitization products - 1,256 1,256 Life insurance general accounts - 1,622 1,622 Comingled funds (see Note) - 39,683 39,683 Other 43 1,251 1,294 Total 6,730 86,048 92,778 Note: Commingled funds comprised 44% in listed equities, 18% in national government bonds, 23% in other bonds, and 15% in other assets. Total 31

33 (iii) Actuarial Assumptions The major actuarial assumptions at the end of reporting periods are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Discount rates 0.6 % 0.8 % The weighted average duration of defined benefit plan obligations for the years ended March 31, 2016 and 2017 were 14.0 years and 13.9 years, respectively. (iv) Sensitivity Analysis for Defined Benefit Plan Obligations Based on the assumption that all other variables were held constant, the impacts on defined benefit plan obligations of a 0.5 percentage point increase or decrease in the discount rate as March 31, 2016 and 2017 are as follows. In reality, changes in other assumptions may affect the outcome of the analysis. For the year ended March 31, 2016 For the year ended March 31, percentage point increase 0.5 percentage point decrease 0.5 percentage point increase 0.5 percentage point decrease Effects of changes in discount rate (7,903) 7,382 (7,748) 8,548 (2) Defined Contribution Plans The Company has recognized expenses (continuing operations) on defined contribution plans of 892 million and 1,409 million for the years ended March 31, 2016 and 2017, respectively. 32

34 16. Equity and Other Capital Items (a) Changes in Total Number of Authorized Shares, Shares Issued, and Treasury Stock Number of authorized shares Number of shares For the year ended March 31, 2016 For the year ended March 31, 2017 Balance at beginning of year 350,000, ,000,000 Changes - - Balance at end of year 350,000, ,000,000 Total number of issued shares Balance at beginning of year 137,738, ,738,730 Changes - - Balance at end of year 137,738, ,738,730 Number of treasury stock Balance at beginning of year 206, ,212 Changes (Note 3) 1,989 1,629 Balance at end of year 208, ,841 Notes: 1. The shares that the Company issues are ordinary shares with non-par value. 2. Issued shares are fully paid. 3. For the year ended March 31, 2016, the number of shares increased by 1,989, which consisted of purchase of 1,989 shares. For the year ended March 31, 2017, the number of shares increases by 1,629, which consists of purchase of 1,629 shares. (2) Capital Surplus The main component of capital surplus is legal reserve. Legal Reserve The Japanese Company Law (JCL) requires that at least half of paid-in capital be appropriated as common stock and the rest be appropriated as a legal reserve within capital surplus. Under the JCL, The legal reserve can be incorporated in common stock by resolution at a shareholders meeting. (3) Retained Earnings Retained earnings comprise the following categories: (i) Earned Reserves The JCL requires that 10% of the retained earnings appropriated for dividends be retained until the total amount of earned reserves included in legal reserve and earned reserves reaches a quarter of the nominal value of common stock. The accumulated earned reserves can be appropriated for deficit disposition. In addition, earned reserves may be available for dividends by resolution at the shareholders' meeting. (ii) Other Retained Earnings Other retained earnings are earned and undistributed by the Group. (4) Accumulated Other Comprehensive Income (i) Net Changes in Financial Assets Measured at Fair Value through OCI These are the differences between the acquisition cost and fair value of FVTOCI financial assets. (ii) Remeasurement of Defined Benefit Plans Actuarial gains and losses are the effects of differences between actuarial assumptions at the beginning of the year and what has actually occurred, and the effects of changes in actuarial assumptions. (iii) Foreign Currency Translation Adjustments These adjustments result from converting the financial statements of foreign operations into the Group s presentation currency. (iv) Net Changes in Cash Flow Hedges These are the portions deemed effective of net changes in the fair value of derivative financial instruments designated as cash flow hedges. 33

35 17. Dividends (1) Dividend Payments Decision The Board of Directors on May 25, 2015 The Board of Directors on October 26, 2015 The Board of Directors on May 25, 2016 The Board of Directors on October 27, 2016 Share class Common stock Common stock Common stock Common stock Appropriation from Retained earnings Retained earnings Retained earnings Retained earnings Cash dividends () Cash dividends per share (Yen) Record date Effective date 3, March 31, 2015 June 3, , September 30, 2015 November 30, , March 31, 2016 June 3, , September 30, 2016 November 30, 2016 (2) Dividends on common stock for which the record date falls in the fiscal year ended March 31, 2017, and the effective date falls in the following fiscal year are as follows: Decision The Board of Directors on May 24, 2017 Share class Common stock Appropriation from Retained earnings Cash dividends () Cash dividends per share (Yen) Record date Effective date 6, March 31, 2017 June 2, Selling, General and Administrative Expenses Details of selling, general and administrative expenses are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Personnel expenses (42,211) (42,041) Research and development expenses (16,097) (19,287) Depreciation and amortization (4,511) (4,199) Other (31,126) (31,966) Total (93,945) (97,493) 19. Personnel Expenses Details of personnel expenses are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Salaries (61,149) (61,106) Employees bonuses (20,810) (22,043) Retirement benefit expenses (5,734) (5,639) Legal and employee benefits expense (12,078) (12,223) Extra retirement payments (978) (620) Total (100,750) (101,630) Note: Personnel expenses are included in cost of sales, selling, general and administrative expenses, and other expenses. 20. Research and Development Expenses Research and development expenses are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Research and development expenses (20,163) (23,581) Note: Research and development expenses are included in cost of sales and in selling, general and administrative expenses. 34

36 21. Impairment Losses The components of impairment losses by asset category are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Property, plant and equipment (104) (1,666) Intangible assets (1,785) (2,318) Other - (134) Total (1,889) (4,119) Impairment losses are included in other expenses. The component of impairment losses by reportable segment is described in Note 4 Segment Information. Information on main impairment losses recognized for the fiscal years ended March 31, 2016 and 2017 is as follows: For the year ended March 31, 2016, the Company did not conclude that the profit as projected for the goodwill allocated to the Analytical Systems business in the Science & Medical Systems segments was expected. The Company therefore recognized impairment loss. The recoverable amount of this asset was measured at value in use. The value in use was calculated by discounting the estimated future cash flows by 6.0%. For the year ended March 31, 2017, the difference between recoverable amounts and book values of buildings, land and other assets held by the Group which did not belong to any segment was recognized as impairment loss, as their usage is outside the scope of the previously intended usage due to the decision to sell these assets and consequently recovery of the investment is no longer expected. The recoverable amounts of these assets were based on the appraisal values provided by a licensed real estate appraiser and were measured at the fair value after deducting estimated disposal costs. The Company does not conclude that the profit as projected for the goodwill allocated to the Analytical Systems business in the Science & Medical Systems segments is expected. The Company therefore recognized impairment loss. The recoverable amount of these assets was measured at the value in use. The value in use was calculated by discounting the estimated future cash flows by 6.0%. 22. Other Income and Expenses The components of other income are as follows: Gain on transition to defined contribution pension plans (Note 1) For the year ended March 31, 2016 For the year ended March 31, ,799 - Reversal of allowance for doubtful receivables Gain on sale of property, plant and equipment, intangible assets (Note 2) Other Total 4, Notes: 1. Details of gain on transition to defined contribution pension plans are described in Note 15 Retirement and Severance Benefits. 2. Gain on sale of assets held-for-sale is included. The components of other expenses are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Impairment losses (Note) (1,889) (4,119) Loss on sale and disposal of property, plant and equipment, and intangible assets (324) (677) Other (447) (49) Total (2,660) (4,845) Note: Details of impairment losses are described in Note 21 Impairment Losses. 35

37 23. Financial Income and Expenses Interest income and interest charges are related to financial assets and liabilities measured at amortized cost. The components of financial income, except interest income, are as follows: Dividends income For the year ended March 31, 2016 For the year ended March 31, 2017 FVTOCI financial assets Gain on sale of financial instruments FVTPL financial assets 24 2 Foreign exchange gains Total The components of financial expenses, except interest charges, are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Loss on valuation of financial instruments FVTPL financial assets (32) (30) Foreign exchange losses (1,278) - Other (201) (246) Total (1,510) (276) 24. Earnings per Share Basic earnings per share attributable to Hitachi High-Technologies Corporation stockholders is calculated based on the following information: Net income attributable to Hitachi High- Technologies Corporation stockholders (millions of yen) For the year ended March 31, 2016 For the year ended March 31, ,989 40,170 Basic weighted average number of ordinary shares 137,531, ,529,777 Basic earnings per share attributable to Hitachi High-Technologies Corporation stockholders (yen) Note: Basic and diluted earnings per share attributable to Hitachi High-Technologies Corporation stockholders are the same, as there were no dilutive potential ordinary shares. 36

38 25. Other Comprehensive Income Amounts arising, reclassification adjustment, and tax effect for each component of OCI for the years ended March 31, 2016 and 2017 are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Items not to be reclassified into net income Net changes in financial assets measured at FVTOCI Amounts arising (1,340) 3,902 Before tax effect adjustment (1,340) 3,902 Tax effect 588 (1,217) Net changes in financial assets measured at FVTOCI (752) 2,684 Remeasurements of defined benefit plans Amounts arising (9,425) 6,856 Before tax effect adjustment (9,425) 6,856 Tax effect 2,474 (2,052) Remeasurements of defined benefit plans (6,951) 4,805 Total items not to be reclassified into net income (7,704) 7,489 Items that can be reclassified into net income Foreign currency translation adjustments Amounts arising (3,157) (666) Net changes in cash flow hedges Amounts arising 137 1,372 Reclassification adjustment 1,523 (2,185) Before tax effect adjustment 1,660 (814) Tax effect (528) 252 Net changes in cash flow hedges 1,132 (562) Total items that can be reclassified into net income (2,025) (1,228) OCI (9,729) 6, Non-Cash Transactions Details of significant non-cash transactions are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Property, plant and equipment acquired under finance leases

39 27. Financial Instruments (1) Financial Risk Management Policy The Group is exposed to financial risks (credit, liquidity, and market risks) in the course of business, and manages risks based on a specific policy to avoid or reduce such risks. The Group uses derivative transactions to avoid the risk of cash flow fluctuations resulting from fluctuations in foreign exchange markets, and does not transact derivatives for speculative purposes. (2) Credit Risk The Group is exposed to customer credit risk for trade receivables acquired in the course of business. Investments in debt securities held for managing cash surplus and equity securities held for strategic purposes are exposed to credit risk of the issuers. Forward exchange contracts that the Group enters into to hedge against foreign-exchange market fluctuation risks are exposed to credit risk of the counterparty financial institutions. In accordance with our business criteria, the Company decides whether or not to engage in transactions and determines credit limits and terms and conditions. The Company also undertakes conservation measures that include acquiring collateral. After receivables are recognized, operating and administrative divisions share information on the status of transactions in managing payments by due dates. The Company conducts periodic credit checks and reviews whether or not to continue transactions or assesses whether credit limits and terms and conditions are adequate. In principle, the Company limits investments of cash surpluses to bonds with issuer credit ratings of at least investment grade and to deposits with financial institutions. In principle, forward exchange contracts are entered into only with internationally recognized financial institutions with at least an A rating. The Company prevents a significant concentration of credit risk by engaging in transactions with multiple financial institutions. The Company periodically confirms its reasons for holding equities and other instruments held for policy purposes and evaluates issuers and their financial positions. Except for guaranty obligations, the Group s maximum exposure to credit risk if collateral held and other credit enhancements are not included is equal to the financial assets carrying amount after impairment in the consolidated statements of financial position. The maximum exposure to the credit risk from guaranty obligations is the guaranteed debt described in Note 33 Contingencies. At March 31, 2016 and 2017, the Group considers that unimpaired financial assets were all collectible. The analyses of the aging of trade receivables that are past due but not impaired as of March 31, 2016 and 2017 are as follows. The financial assets include amounts considered recoverable through credit insurance and collateral. As of March 31, 2016 As of March 31, 2017 Past due within 30 days 2,344 2,383 Past due between 31 and 90 days Past due between 91 days and 1 year Past due over 1 year - 19 Total 3,060 2,693 Security deposits accepted as credit enhancements for trade receivables amounted to 2,572 million and 2,560 million as of March 31, 2016 and 2017, respectively. 38

40 The Group reviews the collectibility of trade receivables according to the credit positions of customers and recognizes an allowance for doubtful receivables. Changes in the allowance for the years ended March 31, 2016 and 2017 are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Balance at beginning of year Addition Provisions used (0) (3) Provisions reversed (198) (136) Currency translation effects (2) (4) Balance at end of year Trade receivables individually impaired after taking into account of customer financial positions, payment delays, and other factors amounted to 356 million and 156 million as of March 31, 2016 and 2017, respectively. The allowance for doubtful receivables was 203 million and 110 million as of March 31, 2016 and 2017, respectively. (3) Liquidity Risk Management Maintaining appropriate liquidity levels and efficiently and flexibly securing adequate funds for current and future business operations are important financial objectives for the Group s management. By efficiently managing working capital, the Group endeavors to optimize the effective use of capital in operations while improving Group cash management by centralizing such management within the Company. (i) Non-Derivative Financial Liabilities Details of the maturities of non-derivative financial liabilities are as follows: As of March 31, 2016 Carrying amount Contractual rights to cash flows Due within 1 year Due after 1 year and not later than 5 years Due after 5 years Trade payables 109, , , Other financial liabilities 23,473 23,473 16,435 7,038 0 Total 133, , ,355 7,092 0 As of March 31, 2017 Carrying amount Contractual rights to cash flows Due within 1 year Due after 1 year and not later than 5 years Due after 5 years Trade payables 121, , , Other financial liabilities 20,319 20,319 16,841 3,478 - Total 141, , ,117 3,544 - Guarantee obligations not included in the above tables were 133 million and 87 million as of March 31, 2016 and 2017, respectively. 39

41 (ii) Derivatives Details of the maturities derivatives are as follows: As of March 31, 2016 Due within 1 year Due after 1 year and not later than 5 years Due after 5 years Forward exchange contracts In 1, ,000 As of March 31, 2017 Total Out Due within 1 year Due after 1 year and not later than 5 years Due after 5 years Forward exchange contracts In Total Out (4) Market Risk Management (i) Foreign Currency Fluctuation Risk The Group holds assets and liabilities denominated in foreign currencies, and it is exposed to foreign currency fluctuation risk. The Group addresses this risk by appropriately measuring the net future cash flows per currency and entering into forward exchange contracts within that scope to fix future cash flows arising from assets, liabilities, commitments, and forecasted transactions denominated in foreign currencies. The terms of forward exchange contracts are largely within one year. The Company enters into forward exchange contracts based on its risk management policy and other internal management rules. The chief financial officer receives periodic reports on forward exchange contract transactions, foreign currency denominated assets and liabilities, and commitment and forecasted transaction positions. The Company s subsidiaries similarly enter into forward exchange contracts based on the risk management policy and other internal management rules. The Company s finance department receives periodic reports on the positions of these transactions, and checks that they are undertaken in keeping with internal management rules. Foreign Exchange Sensitivity Analysis The sensitivity analysis for currency exchange rates indicates the impact on income from continuing operations, before income taxes, and on other comprehensive income (before tax effect adjustment) of the Japanese yen appreciating 1% against other currencies as of March 31, 2016 and 2017, while all other variables are held constant, as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Income before income taxes US dollar 1 2 Euro (4) 9 RMB (23) (11) Other 5 33 Other comprehensive income US dollar Euro 12 1 RMB (3) (1) Other

42 (ii) Share Price Fluctuation Risk The Group holds equity instruments (including shares and investment) to develop its business, and is exposed to share price fluctuation risks. Management periodically confirms the market values of these equity instruments and the financial positions of their issuers. Share Price Sensitivity Analysis The sensitivity analysis for the Group s holdings of marketable equity instruments indicates the impact on other comprehensive income (before tax effect adjustment) of share prices rising 10%, while all other variables are held constant, as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Other comprehensive income 1,

43 (5) Fair Value (i) Carrying Amounts and Fair Value of Financial Assets and Financial Liabilities The carrying amounts and fair values of financial assets and financial liabilities are as follows: Assets measured at amortized cost Current assets As of March 31, 2016 As of March 31, 2017 Carrying amount Fair value Carrying amount Fair value Cash and cash equivalents 169, , , ,783 Trade receivables 134, , , ,566 Investments in securities and other financial assets 5,366 5,366 31,380 31,380 Bank deposits with maturities exceeding three months ,000 25,000 Other receivables 5,305 5,305 6,279 6,279 Loans Non-current assets Trade receivables Investments in securities and other financial assets 2,234 2,234 2,350 2,350 Investments in securities and other investments 1,867 1,867 1,947 1,947 Loans Assets measured at fair value FVTPL financial assets Current assets Investments in securities and other financial assets 1,000 1, Other financial assets (derivatives) 1,000 1, Non-current assets Investments in securities and other financial assets Other investments FVTOCI financial assets Non-current assets Investments in securities and other financial assets 10,829 10,829 7,254 7,254 Securities 10,829 10,829 7,254 7,254 Liabilities measures at amortized cost Current liabilities Trade payables 109, , , ,342 Other financial liabilities 16,435 16,435 16,841 16,841 Lease payables Deposits 3,332 3,332 3,281 3,281 Other payables 12,922 12,922 13,420 13,420 Non-current liabilities Other financial liabilities 7,038 7,038 3,478 3,478 Lease payables Other payables 6,790 6,790 3,322 3,322 Liabilities measured at fair value FVTPL financial liabilities Current liabilities Other financial liabilities (derivatives) (ii) Fair Value Measurements The following methods and assumptions are used to measure the fair value of financial assets and liabilities. In measuring the fair value of financial instruments, quoted market prices are used if available. If these prices are unavailable, management uses the discounted future cash flow method or other appropriate evaluation methods. 42

44 a) Cash and Cash Equivalents The carrying amount approximates the fair value because of the short maturities of these instruments. b) Trade Receivables and Payables The carrying amount approximates the fair value because of the short settlement periods of these instruments. c) Investments in Securities and Other Financial Assets and Other Financial Liabilities Measured at Amortized Cost The carrying amounts of bank deposits with maturities exceeding three months, other receivables, deposits, other payables, and short-term loans approximate the fair value because of the short maturities of these instruments. For securities, long-term loans, lease payables, long-term other payables, and other investments, the Company measures future cash flow at a discounted rate on the assumption that the contracts are newly executed. d) Investments in Securities and Other Financial Assets Measured at Fair Value These are described in (iii) Fair Value Hierarchy below. (iii) Fair Value Hierarchy Financial instruments are classified into the following fair value hierarchy: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets Level 2: Valuations measured by direct or indirect observable inputs other than Level 1 Level 3: Valuations measured by significant unobservable inputs When several inputs are used for a fair value measurement, the level is determined based on the input with the lowest level in the fair value measurement as a whole. Transfers between fair value hierarchy levels are deemed arising at the beginning of each quarter. Equity Securities Equity securities are classified as Level 1 financial instruments, as they can be measured at fair market value. Equity securities classified as Level 1 are listed shares. If the significant indicators for measuring the fair value of unlisted shares and other similar financial instruments are unobservable, they are classified as Level 3 investments. The Group measures fair value by using price information supplied by financial institutions and other parties, similar company comparisons, the discounted cash flow method, the valuation models based on net assets, and other methods. Derivatives FVTPL financial assets and liabilities are measured based on forward exchange rates at the end of the fiscal year. The Group classifies these instruments as Level 2, as it only enters into foreign exchange contracts. Financial Assets and Liabilities Measured at Amortized Cost The financial assets and liabilities measured at amortized cost are mainly classified as Level 2. The financial assets and liabilities measured at fair value and classified by level are as follows: 43

45 As of March 31, 2016 Level 1 Level 2 Level 3 Total FVTPL financial assets Investments in securities and other financial assets Other investments Other financial assets (derivatives) - 1,000-1,000 FVTOCI financial assets Investments in securities and other financial assets Securities 10, ,829 Total assets 10,672 1,000 1,071 12,743 FVTPL financial liabilities Other financial liabilities (derivatives) Total liabilities As of March 31, 2017 Level 1 Level 2 Level 3 Total FVTPL financial assets Investments in securities and other financial assets Other investments Other financial assets (derivatives) FVTOCI financial assets Investments in securities and other financial assets Securities 6, ,254 Total assets 6, ,210 8,161 FVTPL financial liabilities Other financial liabilities (derivatives) Total liabilities Changes in Level 3 financial assets are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Investments in securities and other financial assets FVTPL financial assets FVTOCI financial assets Total Investments in securities and other financial assets FVTPL financial assets FVTOCI financial assets Balance at beginning of year , ,071 Total gain (loss) in profit or loss (32) (75) (107) (30) (260) (290) Net profit or loss (32) - (32) (30) - (30) OCI - (75) (75) - (260) (260) Acquisitions Sales or disposals (181) (9) (190) (118) - (118) Currency translation effects (19) (8) (27) Other (0) - (0) (0) - (0) Balance at end of year , ,210 Total The gain or loss recognized in net profit or loss is included in financial income or financial expenses in the consolidated statements of profit or loss. For the total gain (loss) in net profit or loss, losses of financial assets held at year-end were 32 million and 30 million in the years ended March 31, 2016 and 2017, respectively The gain or loss recognized in other comprehensive income is included in net changes from financial assets measured at fair value through other comprehensive income in the consolidated statements of comprehensive income. 44

46 (6) FVTOCI Financial Assets The Group classifies equity instruments held to maintain and strengthen business relations FVTOCI financial assets, in view of the holding purpose. (i) Fair Values of Principal Equity Instruments The fair values of principal FVTOCI financial assets are as follows: As of March 31, 2016 Principal FVTOCI financial assets Fair value Hitachi Capital Corporation 5,698 Horiba, Ltd. 2,165 Shin-Etsu Chemical Co., Ltd. 810 Komatsu Ltd. 770 Dexerials Corporation 487 Aica Kogyo Co., Ltd. 437 Enplas Corporation 137 Sanyo Special Steel Co., Ltd. 109 As of March 31, 2017 Principal FVTOCI financial assets Fair value Horiba, Ltd. 3,077 Shin-Etsu Chemical Co., Ltd. 1,342 Komatsu Ltd. 1,166 Aica Kogyo Co., Ltd. 542 Dexerials Corporation 481 Sanyo Special Steel Co., Ltd. 125 PT. SKY ENERGY INDONESIA 123 Enplas Corporation 101 (ii) Derecognition of FVTOCI Financial Assets The Group sold some FVTOCI financial assets following reviews of business relationships or for other reasons. The FVTOCI financial assets that were derecognized for the years ended March 31, 2016 and 2017 are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Fair value at time of sale 263 7,907 Accumulated gains at time of the recognition 3 7,779 Accordingly, the accumulated gains transferred from accumulated other comprehensive income to retained earnings were 5 million and 5,378 million in the years ended March 31, 2016 and 2017, respectively. 45

47 (iii) Dividend Income For the year ended March 31, 2016 For the year ended March 31, 2017 Investments derecognized during year Investments held at year-end Total (7) Derivatives and Hedge Accounting (i) Cash Flow Hedges The Group uses forward exchange contracts to hedge cash flow fluctuations for forward exchange commitments and forecasted transactions, designating derivatives that satisfy hedge accounting requirements as cash flow hedges. Effective portions of fair value fluctuations of forward exchange contracts designated as cash flow hedges are recognized as OCI, while ineffective portions are recognized in profit or loss. No amounts were recognized in profit or loss in the years ended March 31, 2016 and 2017, as the effects of hedges were either not effective or were excluded from the assessment of hedge effectiveness. (ii) Derivatives Not Designated as Hedges The Group uses forward exchange contracts to hedge against currency exchange risks associated with foreign currency denominated assets and liabilities. Hedge accounting is not adopted for these contracts, and all fair value changes are recognized in profit and loss. (iii) Fair Value of Derivatives Designated as Hedging Instruments The fair values of derivatives designated as hedging instruments as of March 31, 2016 and 2017 are as follows: Forward exchange contracts Selling Contract amount As of March 31, 2016 As of March 31, 2017 Over 1 year Fair value Contract amount Over 1 year Fair value US dollar 14, ,135 - (13) Euro 1, Other 2, ,810 - (81) Buying US dollar (11) (1) Euro Other (3) (4) Total 19, ,987 - (97) (8) Capital Management The Group manages its capital under the policy of maintaining appropriate levels of assets, liabilities and equity for current and future business operations, as well as optimizing the capital in its operations. The Company uses the total Hitachi High-Technologies stockholders equity ratio as an important indicator in capital management, sets targets in its medium-term management plan, and regularly monitors them. The total Hitachi High-Technologies stockholders equity ratios at March 31, 2016 and 2017 were 60.4% and 60.7%, respectively. The Group is not subject to any capital requirements except for general rules, such as JCL. 46

48 28. Leases (1) Lessee The Company and certain subsidiaries use leased tools, furniture and fixtures under finance leases. The following table shows the undiscounted amounts and present value of minimum lease payments under finance leases as of March 31, 2016 and Future minimum lease payments Present value of future minimum lease payments As of March 31, 2016 As of March 31, 2017 As of March 31, 2016 As of March 31, 2017 Within 1 year After 1 year and not later than 5 years More than 5 years Total Finance charges (21) (7) - - Present value of future minimum lease payments The Company and certain subsidiaries use leased buildings and structures, machinery and vehicles under operating leases. The following table shows the future minimum lease payments for non-cancelable operating leases as of March 31, 2016 and As of March 31, 2016 As of March 31, 2017 Within 1 year 1,002 1,101 After 1 year and not later than 5 years 1,901 1,821 More than 5 years Total 3,345 3,255 Minimum lease payments for operating leases recognized as expenses in the years ended March 31, 2016 and 2017 are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Minimum lease payments 5,245 5,186 Minimum lease payments are posted in cost of sales and selling, general and administrative expenses. (2) Lessor The Company and certain subsidiaries lease tools, furniture, and equipment under finance lease contracts. The following table shows the future minimum lease payments receivable for finance leases as of March 31, 2016 and As of March 31, 2016 As of March 31, 2017 Within 1 year After 1 year and not later than 5 years More than 5 years Total 1,380 1,578 47

49 29. Major Subsidiaries The Group s consolidated financial statements include the financial statements of the following principal subsidiaries. Company name Location Principal businesses Hitachi High-Tech Solutions Corporation Hitachi High-Tech Materials Corporation Hitachi High-Tech Fielding Corporation Hitachi High-Tech Fine Systems Corporation Hitachi High-Tech Manufacturing & Service Corp. Hitachi High-Tech Science Corporation Hitachi High Technologies America, Inc. Chuo-ku, Tokyo Minato-ku, Tokyo Shinjuku-ku, Tokyo Ownership (%) As of March 31, 2016 As of March 31, 2017 Industrial Systems Advanced Industrial Products Science & Medical Systems, Electronic Device Systems, and Industrial Systems Kamisato, Kodama-gun, Industrial Systems Saitama Prefecture Hitachinaka City, Ibaraki Prefecture Minato-ku, Tokyo U.S.A. Science & Medical Systems and Electronic Device Systems Science & Medical Systems Science & Medical Systems, Electronic Device Systems, Industrial Systems, and Advanced Industrial Products Hitachi High-Technologies Europe GmbH Germany Science & Medical Systems, Electronic Device Systems, Industrial Systems, and Advanced Industrial Products Hitachi High-Technologies (Singapore) Pte. Ltd. Singapore Science & Medical Systems, Electronic Device Systems, Industrial Systems, and Advanced Industrial Products Hitachi High-Technologies (Thailand) Ltd. (Note) Thailand Industrial Systems and Advanced Industrial Products Hitachi High-Technologies (Shanghai) Co., Ltd. China Science & Medical Systems, Electronic Device Systems, Industrial Systems, and Advanced Industrial Products Hitachi High-Technologies Hong Kong Limited China Industrial Systems and Advanced Industrial Products Note: Hitachi High-Technologies (Thailand) Ltd. is a wholly owned subsidiary of Hitachi High-Technologies (Singapore) Pte. Ltd. 48

50 30. Related Party (1) Parent Company Company name Principal business Location Hitachi, Ltd. Manufacturing and sales of electrical machinery and equipment Chiyoda-ku, Tokyo Ownership (%) As of March 31, 2016 As of March 31, (2) Related Party Transactions The Group s significant transactions (excluding those eliminated from the consolidated financial statements) with related parties are as follows: (i) For the year ended March 31, 2016 Category Parent company Entities with same parent company Notes: Company name Hitachi, Ltd. Hitachi Capital Corporation Details of related party transactions Sales of information equipment and powerrelated parts, etc. Transaction amount 13,796 Deposits of funds 7,398 Outstanding balances Trade receivables 9,446 Advances received 2,087 Deposits (including for more than three months) 136,451 Factoring transactions 36,737 Trade payables 6,290 Hitachi Europe Ltd. Deposits of funds 43 Deposits 7, Transaction amounts that exclude those for factoring transactions do not include consumption taxes. Factoring transaction amounts and outstanding balances include consumption taxes. 2. Deposits of funds and refunds are conducted daily. Transaction amounts represent amounts subtracted from the end of the previous fiscal year. (ii) For the year ended March 31, 2017 Category Parent company Entities with same parent company Notes: Company name Hitachi, Ltd. Details of related party transactions Sales of railway related parts, information equipment and powerrelated parts, etc. Transaction amount 17,763 Deposits of funds 42,181 Outstanding balances Trade receivables 12,173 Advances received 399 Deposits (including for more than three months) 178,632 Sale of securities 7, Hitachi Europe Ltd. Proceeds of funds 773 Deposits 6, Transaction amounts do not include consumption taxes. Outstanding balances include consumption taxes. 2. Deposits of funds and refunds are conducted daily. Transaction amounts represent amounts subtracted from the end of the previous fiscal year. 3. The securities are classified as FVTOCI financial assets. The sale price of securities is determined in accordance with the Share Transfer Agreement with Hitachi Ltd. (3) Compensation for Directors and Executive Officers The compensation for directors and executive officers for the years ended March 31, 2016 and 2017 are as follows: For the year ended March 31, 2016 For the year ended March 31, 2017 Short-term employee benefits

51 31. Collateral Assets pledged as collateral and the secured liabilities are as follows: Assets pledged as collateral Investments in securities and other financial assets Secured liabilities As of March 31, 2016 As of March 31, Trade payables Notes: 1. Assets pledged as collateral do not give assignees the right to sell or repledge the collateral. 2. Under assets pledged as collateral as at March 31, 2016, 288 million of investments in securities and other financial assets is measured at fair value and 353 million is the maximum guaranteed amount. Under assets pledged as collateral as at March 31, 2017, 347 million of investments in securities and other financial assets is measured at fair value and 421 million is the maximum guaranteed amount. 32. Commitments Commitments related to the acquisition of assets subsequent to March 31, 2016 and 2017 are as follows: As of March 31, 2016 As of March 31, 2017 Purchase of property, plant and equipment 1,037 1, Contingencies (1) Contingent Liabilities The Group provides the following guarantees to financial institutions with respect to the home loans of Group employees and the operationally contracted guarantees for the office lease of a subsidiary: As of March 31, 2016 As of March 31, 2017 Employee guarantees Total (2) Contingent Assets None (3) Litigation Although the Group is subject to litigation in the natural course of business and claims that do not lead to litigation, none of these matters materially affect the operations of the Group. 50

52 34. Subsequent Events At a meeting of the Board of Directors held on April 26, 2017, the Company resolved to acquire shares of subsidiaries of Oxford Instruments plc (hereinafter, OI ) based in England and take over the business of the subsidiaries relating to a part of the industrial measuring equipment business involving, atomic spectrometric products (X-ray fluorescence analyzers, magnetic induction measurement instruments, optical emission spectrometers, and laser induced breakdown spectrometers; hereinafter, targeted business ). The Group concluded an acquisition agreement on the same day as follows. i ) Reason for stock purchase and business acquisition The Group has embraced the following as its Corporate Vision: To consistently aim to be Global Top in high-tech solutions. Guided by this vision, the Group is pushing ahead with businesses with the mission to turn its customers into fast-moving, cutting-edge business. In April 2016, the Company formulated its Mid-Term Management Strategy running through fiscal 2018 with the basic policy of maintaining profits earned by its main business and promoting resource strengthening and investments. Concrete strategies and measures are being implemented to accelerate further growth toward In the Scientific Systems Business, the Group s core business, the Company has adopted the business vision of aiming to be a global major player in analytical instruments markets based on its Mid-Term Management Strategy. With this in mind, the Group has been working to bolster its technologies, products and sales networks through alliances and M&A activities, in addition to inhouse development. OI is a global scientific analytical instruments company that was spun out from Oxford University. The Company has reached an agreement with OI to acquire the targeted business. OI manufactures and markets an expansive lineup of atomic spectroscopy products, including both benchtop and handheld models. Notably, handheld models and other portable equipment are increasingly being used in a broad range of fields as on-site quality assurance tools. Our Scientific Systems Business has strengths in benchtop atomic spectroscopy product models. Through the acquisition of the targeted business, the Group will bolster its lineup by bringing in OI s handheld atomic spectroscopy product models, where OI is strong. This will enable the Group to address customer needs by supporting various sample types and measuring settings ranging from precision analysis in the laboratory to on-site analyses. In addition, the Group will incorporate the sales network established by OI worldwide into its organization, enabling it to strengthen its sales network further. 51

53 ii) Ownership ratio 100% iii) Acquisition price GBP80 million (Approximately JPY11,200 million) * * The above value represents business fair value. The acquisition price is scheduled to be adjusted when the transaction is executed, in consideration of net interest-bearing debt, operating capital and other factors. The value has been converted into yen at the exchange rate as of March 31, 2017 (1GBP = 140). iv ) Stock purchase and business acquisition execution date July 3, 2017 (planned) This stock purchase and business acquisition transaction will be completed after OI has completed the reorganization of OI Group subsidiaries and after the completion of the filing of notifications and the acquisition of the necessary approvals from the government authorities pertaining to the anti-trust laws and investment control laws of each country. The impact on the consolidated financial statements is not described as the calculation of the fair value of assets acquired and liabilities assumed on the stock purchase and business acquisition execution date is in process. 52

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